Site Mobile Navigation

Bernanke Sees Hopeful Signs but No Quick Recovery

We continue to expect economic activity to bottom out, then to turn up later this year, the Feds Ben Bernanke said Tuesday.Credit
Stephen Crowley for The New York Times

WASHINGTON — Ben S. Bernanke, the chairman of the Federal Reserve, said on Tuesday that the economic free fall of the last nine months was nearing an end and that the United States should begin a fragile recovery by the end of this year.

In his most upbeat assessment in a long time, Mr. Bernanke said a wide array of indicators, from consumer spending and home sales to a revival in the credit markets, now suggested that the economy was stabilizing.

But the Fed chairman also warned that the recovery would be slow. He predicted that job losses would probably continue until sometime in 2010, and that unemployment was virtually certain to climb from its current rate of 8.5 percent.

In normal times, that kind of forecast would hardly be comforting. But Mr. Bernanke’s view reinforced the growing consensus among private forecasters that the worst of the crisis might be past.

Testifying before the Joint Economic Committee of Congress, the Fed chairman noted a wide array of encouraging data in recent weeks. The hopeful signs include a jump in consumer spending in the first quarter of this year; steadying sales of new and existing homes; and a modest revival of the credit markets.

An error has occurred. Please try again later.

You are already subscribed to this email.

But economists also said that the United States has a lot of ground to make up. Consumers have lost huge amounts of wealth as a result of the collapse in housing prices, and tens of thousands of jobs in the automobile and financial services industries have been permanently wiped out.

On top of that, business investment remains anemic — a sign that employers are not ready to expand or to start re-hiring in large numbers.

“Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while,” Mr. Bernanke predicted. “We expect that the recovery will only gradually gain momentum and that economic activity will diminish slowly.”

On Friday, the Labor Department is expected to release another blast of bad news when it estimates the pace of job losses in April. Analysts estimate that the economy lost at least 600,000 jobs and possibly more than 700,000 jobs last month, after having already lost five million jobs since the recession began more than a year ago.

But job creation usually lags behind changes in the economy, because employers try to retain workers when a downturn begins and are reluctant to resume hiring until they are certain that demand for their goods and services will keep growing.

Economists said their fears of a second Great Depression have waned as some important gauges of the economy began to stabilize. Prices for raw materials like copper, oil and aluminum appear to have hit a bottom, showing that there is still demand for commodities used in industrial production. Surveys show that consumer sentiment is healing, and that people are slightly more optimistic about the economy and the job market as they look ahead.

“It’s all moving in the right direction,” said Michael T. Darda, chief economist at MKM Partners.

Mr. Bernanke, in his testimony, warned that his prediction of a mild recovery late this year depended on continued stability in the financial system. Acknowledging that the Treasury Department’s program to bail out troubled financial institutions is extremely unpopular among voters and in Congress, he said that the program was an essential part of the government’s strategy for recovery.

On another issue, Mr. Bernanke suggested many of the nation’s 19 biggest banks would be told to raise more capital when the Fed announces the results of stress tests on Thursday. The tests are to determine whether banks would have enough capital if the economic downturn is worse than expected.

Jack Healy contributed reporting from New York.

A version of this article appears in print on , on Page B4 of the New York edition with the headline: Fed Sees Mild Recovery Starting by End of Year. Order Reprints|Today's Paper|Subscribe